Over the last two years, lululemon athletica (NASDAQ:LULU) has been a poster child for Murphy’s Law as everything that could possibly go wrong did from product problems to falling sales to a big public dispute with the founder and so on.
Today’s explosive turnaround, however, suggests that this producer and retailer of yoga wear may be shifting from being a fallen star to a rising one instead. Shares are up 15.5% after the company beat the street on earnings $0.33 to $0.29 and raised its full year guidance by a penny to the $1.72 to $1.77 range.
A penny increase in guidance doesn’t seem like enough to spark this kind of rally but represents the first sign of a turnaround as the company cut guidance at its last quarterly report. A 30% increase in internet sales, expansion into Asia, new street wear and men’s product lines also may attract renewed attention.
Trading action over the last few months suggests the stock had stabilized and that there appear to have been a lot of traders on the sidelines looking for a reason to jump in. After gapping down in May, the shares had stabilized in the $36.50 to $42.00 area while higher lows in the RSI indicated that downward pressure was easing. Today’s breakaway gap up through $42.00 leaves a number of bears trapped offside in an island bottom.
With RSI getting overbought already and the shares having moved up so fast, it’s possible we may see a bit of backing and filling over the next day or so and a retest of $42.00 as new resistance appears possible.
This type of breakout represents a significant trend change with the potential for follow through over the medium and long term. A recovery trend may become established as problems that have been overhanging the stock dissipate and traders anticipate the potential for renewed growth from the new initiatives mentioned above.
Initial resistance may appear near $47.50 where a measured move from the recent base, a 23% retracement of the previous downtrend and the 200-day moving average cluster together, with the $50.00 round number lying in wait beyond that.
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